Income and Health 4 Public health policies for the future

We hope that by now the reader is convinced of two points. First, the evidence shows increasingly that income differences within countries are the main reason for differences in health both within and between developed countries. Second, the health effects of income distribution can only be dealt with by a redistribution of income. For though in a few cases we know how we could intervene in the causal chain by which income affects health – poor people are more likely to live in damp housing or work in dangerous manual jobs, for example – policies to improve such particular problems would have only a limited impact on health. Inequality seems to be inherently bad for society, particularly for those at the bottom of the pile. Creating a more equal society has to be the main way forward for improvements in public health.

From the public health point of view we have to minimise what the health evidence shows are the socially debilitating effects of inequality. The aim must be to develop a society in which people have a greater sense of security, self-confidence and autonomy. We believe that the fundamental problem is the way status differences lead people to feel devalued, insecure and put at a disadvantage.

Although status divisions take a variety of cultural forms and spring from several different sources, income inequalities are a crucial source and outward expression of these. We believe that the implication of the health evidence is that if the tax/benefit system can be used to reduce income differentials it will have made an important difference to the sense of security and self-confidence in the population at large.

We have no doubt that just as insecurity and loss of self-confidence harm people’s health, they also damage people’s ability to make an effective productive contribution to society – not only in the realms of paid and unpaid work but also through reducing the quality of their relationships, both personal and with the wider community.

The most urgent need is to bring the incomes of the least well-off up towards the average. But what is the appropriate level of minimum income to aim at? The evidence leads one to expect that increasing the minimum income as a proportion of the average income would go steadily hand in hand with rising health. If this were the case then drawing a poverty line below which no one should fall would be arbitrary in that the nearer average it is the better for health, and the decision would be based entirely on other political and economic considerations.

There is substantial evidence that the incidence of many different aspects of the deprivation associated with low income does not increase steadily as relative income drops. On the contrary, there seems to be a jump in the degree of deprivation as income drops below around sixty percent of the average. This idea of a threshold level of poverty has been developed by Peter Townsend, originally on data from 1968/9 and although subject to some criticism is on the whole increasingly widely accepted. Further support was provided by a MORI survey which found wide agreement on which of a range of items should be considered ‘necessities’. Looking at the incomes of those who lacked such ‘necessities’ they too found a substantial jump in deprivation at around 133% of the then supplementary benefit level. The conclusion of such studies is that to be able to have what people in general regard as ‘necessities’ in our society, people need an income equivalent to an increase in the state’s minimum income (as indicated by benefit levels) of between one-third and one-half, or again to around sixty percent of average household income.

Although we do not fully understand what it is about poverty that damages health, it seems reasonable to expect that such a sharp increase in deprivation would be associated with marked health consequences. There is also some more direct evidence that this level of relative income may be particularly significant in health terms. Thus there are sound reasons for believing that the most urgent part of any effective public health strategy is to ensure that everyone has an income of at least sixty percent of the average.

There is growing concern about the increasing numbers whose poverty excludes them from mainstream society and the social consequences of such marginalisation for society as a whole. There is evidence from opinion polls of widespread belief that the majority should be prepared to make a sacrifice for the minority. But from the point of view of improving health – and probably also the quality of life – this is not an appropriate policy. As we have seen, the evidence is that the health of the poorer two-thirds of the population would benefit from more equal income distribution. Relieving poverty by making life more difficult for those on average incomes is thus a policy of dubious benefit. The money to improve the incomes of the poorest must come not from the majority but from those on high incomes; it will then have benefits for the health of most of the population.

Although this conclusion is attractive for most on the left, recognising the need for it as a public health strategy involves making a major conceptual shift. The fact that inequality influences the health of so many people indicates that it has much deeper health effects than we recognise, way beyond the material risks that have traditionally been seen as the major influences. The psycho-social effects of inequality and differences in social status must be much wider than we are used to recognising.

If the most effective public health strategy is to increase equality and reduce poverty, the key issue for public health then becomes: how should this be achieved?

Focus on tax and benefits

Developing a progressive redistributive tax and benefit policy has to be a top priority. It might seem more attractive to concentrate on inequalities in original income rather than allowing initial inequality and then modifying it. Japan, the country with the greatest equality of net incomes, achieves this largely through limited inequality in gross incomes. Yet there are a number of reasons for making taxes and benefits the main focus of a public health campaign.

Firstly, we can be confident that taxes and benefits can be a tool of redistribution. Economists sometimes argue that using taxes and benefits to redistribute income is doomed to failure as original incomes will automatically adjust to offset any changes. However, a study of income distribution in developed countries in 1979 using the Luxembourg Income Study data found that policies on benefits and direct taxation had a substantial impact on the numbers living in poverty (defined as fifty percent median income adjusted for household size) and was more important than original income in explaining why inequalities in final income are smaller in some countries (such as Sweden) than others (such as the USA). In addition, tax and benefit policy played a major part in the substantial increase in inequality under the Conservative administrations since 1979 and could presumably be equally effective in reversing it.

Secondly, considering original incomes and the many factors that may influence them takes us straight into macro-economics. Ensuring full employment and successful regional policies, calculating the effects of a minimum wage or the impact of training and education on employment levels, deciding whether the growing distinction between ‘core’ and ‘peripheral’ workers is here to stay – such questions are vitally important in making original incomes more equal, but they involve discussing policy on almost everything, and require a sophisticated ability to steer through the maze of conflicting views and wishful thinking on the macro-economic effects. Original income can really only be discussed as part of overall economic policy. Whereas government policies on taxes and benefits are rightly seen as concerned primarily with redistribution, this is only one of many factors influencing economic policy.

Thirdly, taxes and benefits have the great advantage of being under direct government control, and having an immediate effect on income. Significant changes can be made in a single budget.

There is a need for policies designed to affect original income and for a strong public health voice in developing such policies. However the public health movement has the greatest chance of successfully influencing redistribution over the next few years by a concerted campaign on taxes and benefits. We need a heightened awareness that the Chancellor has a much greater impact on health than the Secretary of State for Health, a thought that may well not cross the minds of either. We need to recognise that the old structure of a department covering both health and social security captured, albeit accidentally, a causal relationship that we must not ignore.

It is appropriate, then, that the remainder of this report is largely devoted to considering proposals for reforming our tax and benefit system. We do not attempt to provide a detailed short-term programme of reform. This has been well done by many others around the poverty lobby and the labour movement. The differences between such schemes are usually either technical – for example whether it is more effective in relieving poverty, let alone improving health, to spend money raising child benefit or increasing retirement pensions – or differences of opinion on the political feasibility of different degrees of redistribution. But alongside these debates about what the early budgets of a Labour government should look like, the whole system of income support is subject to increasing criticism. A top priority for the next Labour government must be to set up an investigation at the highest level into the structure of our tax and benefit systems and how they can best be adapted to meet the needs of the future. Its brief must include the appropriate role, if any, of contribution related benefits, the main alternative systems particularly social dividends, and reversing the trend towards increasing numbers of claimants and their increasing poverty. It must propose a system that helps people to build their own future, assists the poor but not at the cost of those on average incomes, and can be used as a tool for bringing about a more equal distribution of financial resources throughout society. The rest of this report is devoted to providing some background to such issues.

Dividing the cake

On the face of it, the task seems simple enough. To start with, taking eighteen percent of the disposable incomes (ie after direct taxes and benefits) of the top twenty percent of households by increased taxation would enable a government to double the incomes of the bottom twenty percent through increased benefits. It is important not to lose sight of such simple models when considering the maze of difficulties to their implementation.

But increasing tax revenue from the well-off is not easy. With the help of their accountants and employers they have been shown to have a remarkable ability to re-order their affairs so that increasing their tax rate does not result in a proportional increase the yield. High income tax rates lead to an increase in fringe benefits and other forms of adjustment, as well as direct tax evasion. The ninety eight percent tax rate which could in theory be charged on investment income before 1979 was a notorious failure, filling accountants’ pockets rather than the government’s. However, increasing tax revenue is perfectly possible, even if not as fast as everyone would like. It requires a combination of broad political support and technical competence. Some of the issues involved are discussed in section 6.

More surprisingly, helping the least well off within our existing structure is not easy either, for a number of reasons, of which the poverty trap is the most glaring. Our system of income support has lagged behind social and political changes, and is now inappropriate. Some hold that it can be rescued, but others, on both right and left, see radical reform of the tax-benefit system as a way to promote social changes. There are clearly limits as to how far this can be done without substantial political support.

How to divide the cake is a central political issue which is a constant source of discussion, struggle and negotiation. There is nothing unique about the transfer of money from the better-off to the poor through taxes and benefits. In all societies some members are engaged in greater production than others and those at less productive stages of their lives – children, sick, disabled and frail people are supported by others – the large majority taking a turn at supporting others at some points in their lives. The feasibility of any such transfer depends on whether the community will cooperate willingly with it. In this context, it is important to recognise the public acceptance of many other cases where resources are redistributed by policies that have remarkably few claims to ‘fairness’ – for example agricultural subsidies, support for those in higher education, or arts subsidies. Much more costly, if less obviously identified, is the transfer of resources to the better off, for example through concessions for home-owners and tax deductions for business expenses.

Although these are long-standing trends that run through Labour as well as Conservative governments, it is important not to lose sight of how remarkable recent Conservative policy has been. In the words of an ex-researcher to a Conservative MP: “Until recently it was taken for granted that a proposal involving too many losers was a political non-starter, but events since 1979 have shown otherwise. Losses have become acceptable, provided they are phased in carefully and provided the groups affected are not too powerful.

Fortunately, there is good evidence to suggest that the radical change of government direction in the last ten years is not reflected by changes in public opinion. There are encouraging indications of broad public support for more progressive policies both in relieving poverty and reducing inequality. For example the results of the 1990/91 British Social Attitudes Survey, showing that three-quarters of people believe that income differences in Britain are too large, only a quarter thought that large income differences were necessary for national prosperity, sixty three percent support action to reduce income differences and eighty two percent thought that government should spend more on benefits for the poor.

An important note of caution, however, is that evidence of public feeling that the Conservatives have gone too far provides little guide as to the degree of redistribution that would be supported. It is easy for those who do not regard themselves as rich to favour ‘the rich paying more. To hope that redistribution can focus only on millionaires and avoid hitting a broad, well-organised and articulate band of middleclass people who consider themselves decently but not excessively paid, is a chimera, and a dangerous one. Comparatively few individuals are on very high earnings. A ten percent increase in the rate of income tax on incomes over £43,500 would raise only £500 million. Yet a considerable number of households have substantial incomes. Looking at two of the better off household types illustrates this.

Figure 5: Distribution of estimated weekly income 1990

Lowest10% get less than Lowest 25% get less than median get exactly top 25% get more than Top 10% get more than
Total gross household income
household with 2 adults only £107.94 £159.13 £285.74 £456.04 £640.84
household with 2 adults and 2 children £196.55 £290 £398.27 £549.59 £714.74
Total disposable household income (ie after tax and benefits)
household with 2 adults only £103.83 £147.50 £235.23 £352.50 £482.85
household with 2 adults and 2 children £165.84 £236.20 £311.81 £428.80 £558.73

1989 figures from the Family Expenditure Survey adjusted for rises in incomes 1989-90

In an effort to woo the middle-class voter the left in Britain has come near to suggesting that taxing the Paul Gettys of the world will alone generate sufficient revenue to finance its policies. A recognition by those in the top twenty five percent that they are indeed privileged and would be financial losers in a progressive redistribution is unavoidable. This is a problem, but one that cannot be dodged and is best faced by direct political debate on the effects of inequality not only on health but on the whole social fabric of society.